Terror group ISIS may make $3 million a day selling oil

The Islamic State terror group, whose members marched through Raqqa, Syria, in this undated photo, makes as much as $3 million a day selling oil on the black market. ﻿

The Islamic State terror group, whose members marched through...

The Islamic State group terrorizing parts of Iraq and Syria derives millions of dollars to fund its operation from the same ancient resource that fuels Houston's booming economy - oil.

While it and other Islamic extremist groups also get support from wealthy donors and raise cash through extortion and other crime, oil sales are giving the Islamic State a substantial new revenue source, as much as $3 million per day, said Luay Al-Khatteeb, founder of the Iraq Energy Institute.

He tracks trades by communicating with his network of sources on the ground who have been counting the number of oil tankers leaving fields controlled by the terrorist organization.

The extremist Sunni group, sometimes called the Islamic State in Iraq and Syria, has been selling oil seized from wells in Iraq and Syria across vast reaches of isolated Middle East terrain far removed from public scrutiny.

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"When ISIS took over the Iraqi oil fields, that's when they hit the jackpot," said Shwan Zulal, a London-based energy consultant who watches oil deals in the area. "The volumes are quite small … but it's significant for a terrorist organization to have that source of financing."

Still, while the sales provide a substantial financial boost for the extremist Sunni group, they are a drop in the 90 million barrel-per-day international oil trade and have had no effect so far on international oil sales or on Houston's thriving energy economy.

From their phones in Houston, a global hub for oil trading, traders from major oil companies regularly broker deals for tankers carrying more than 1 million barrels of oil.

Drop in the bucket

The illicit nature of the Islamic State trade makes it difficult even for the most seasoned experts to say with certainty how much oil the group sells, with estimates ranging anywhere from 10,000 to 100,000 barrels per day.

Even at the upper end, the volumes reportedly sold by the group would be written off as a "rounding error" in most trading books, said one longtime Houston oil trader who would not be identified because of the sensitivity of the business.

"Eighty thousand barrels may seem like a lot to a lay person, but that is a very, very small tanker or two little barges being dragged around at night by an unlit tug," he said.

The situation could change if the terror group moved into Southern Iraq and disrupted production in the country's oil stronghold, but that region has been unaffected by the group's advances.

After gobbling up oil assets in Syria, the group in June moved into Iraq and seized control of several oil fields in the country's northern region.

Based on various accounts, the extremists provide protection and either force workers or pay them to continue pumping oil from the ground. The crude then travels in truckloads or via makeshift pipelines along long-standing black market routes in Kurdistan and Turkey. It's sold to buyers in the region at heavily discounted prices - as low as $25 per barrel, according to some estimates, a quarter of the price the legitimate global market supports.

In one Turkish village, hundreds of illegal rudimentary pipelines constructed from small plastic irrigation tubes carry smuggled diesel fuel to the backyards of some villagers' homes, according to reports and photographs in Turkish media outlets.

And despite the heavy fighting between Islamic State and Kurdish forces called peshmerga, the U.S. government suspects Kurdish involvement in the trade, said a U.S. intelligence official who agreed to speak only on background.

"The area in Iraq where ISIL is operating is associated with long-standing oil smuggling networks which have traditionally had a Kurdish component," the official said, using the abbreviation for the government's preferred name for the group - Islamic State in Iraq and the Levant. "So, nobody should be surprised if there were Kurds involved in bringing ISIL-controlled oil to market."

These small cash deals swapped across the hands of multiple buyers along routes long used for black market trades are difficult to monitor.

"Even if you were able to flesh out the networks and figure them out, how would you then disrupt it?" said Matthew M. Reed, vice president of Foreign Reports, a Washington-based consulting firm that analyzes Middle East oil markets.

U.S. monitoring oil trades

Attempts by the U.S. to dismantle the oil trades as a criminal enterprise would require intelligence on the ground with Turkey's help, Reed said. Disrupting the group's supply chain may be less difficult because oil wells, tanker trucks and rudimentary refining facilities can be identified from the air, Reed said.

U.S. Treasury Department officials say they are working closely with regional partners to make sure they have the tools to throw the group's financing off balance, The agency declined to elaborate.

The U.S. intelligence official said the government has been monitoring oil production and manufacturing facilities under the Islamic State's control as well as tracking the group's efforts to sell oil on the black market, but acknowledged the challenges in estimating its production and sales revenue.

"Clearly there are constraints on ISIL's ability to capitalize on the energy infrastructure it controls as it can't sell at market prices, lacks technical expertise, and cannot operate facilities - some of which are shut down entirely - at anywhere near full capacity," he said.

Assuming the Islamic State secured a single large buyer scooping up 20,000 barrels per day - and most experts believe the group instead conducts small, one-on-one cash transactions with a series of shadowy figures in Turkey and Kurdistan - a 20,000-barrel sale would be dwarfed by trades made daily on international trading floors, saidDavid Butter, an associate fellow at the London-based think tank Chatham House and an expert in oil and gas issues in Syria.

"For an ordinary person, that's quite a lot ... but for a serious oil trader, that's nothing," he said. "That's five minutes worth of trading."

Houston oil traders coordinating international deals primarily work with established buyers who ship their crude overseas to U.S. refineries on ships so large they have to anchor offshore to be offloaded, said Rusty Braziel, president of Houston-based energy analysts RBN Energy.

No impact on global market

The Islamic State peddles its crude across vast reaches of isolated Middle East terrain far removed from public scrutiny and well beyond the reaches of a legitimate international oil market.

"If a barrel doesn't get into the international market ... it's normally not going to be something that traders would know or care about," Braziel said. "It has no opportunity to impact the market that affects us here because it never found its way to the water."

In the small, tight-knit world of oil trading, there's no incentive for traders to stray from known buyers and sellers, making it unlikely that Islamic State oil would ever show up in legitimate first-world markets.

"For the big guys ... there's so much at stake, so much to lose," Zulal said.

But the illicit nature of the trades means the Islamic State probably has to sell its oil cheap, said Butter, making it an attractive buy for unscrupulous dealers.